International Flavors and Fragrances Guides Lower EPS for Fiscal 2016



3Q16 earnings

International Flavors and Fragrances (IFF) reported adjusted EPS (earnings per share) of $1.34 in 3Q16, as compared to $1.39 in 3Q15, implying a 3.6% YoY (year-over-year) fall and missing the Wall Street analysts’ estimate of $1.41.

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Adjusted operating profit

International Flavors and Fragrances reported an adjusted operating profit of $151.1 million in 3Q16, as compared to $163.8 million in 3Q15, implying a 7.8% YoY fall. The operating profit excluded charges related to restructuring costs, operational improvement initiative costs, acquisition related costs, and legal charges.

IFF reported an adjusted operating margin of 19.4% in 3Q16, as compared to 21.4% in 3Q15, implying a fall of 200 basis points.

Driving factors

International Flavors and Fragrances’ fall in adjusted EPS was primarily driven by the following:

  • The company saw a rise in S&A (selling and administrative) expenses by 29.8 million to 152 million in 3Q16, implying 24% YoY rise. As a percentage of sales, S&A expenses represented 19.6% in 3Q16, as compared to 16.0% in 3Q15.
  • The company saw its cost of goods sold rise 80 basis points YoY, while research and development expenses rose 3% YoY.

EPS outlook and ETF investment

IFF lowered its EPS guidance for fiscal 2016. The new guidance suggests the rise in EPS, inclusive of foreign exchange impact, to be in the range of 3%–4%, as compared to the previous guidance of 4.5%–6.5% YoY.

Investors can indirectly hold International Flavors and Fragrances by investing in the PowerShares DWA Basic Materials Momentum Portfolio (PYZ), which had 3.8% of its holdings in IFF on November 8. The top holdings of this fund include Ashland Global Holdings (ASH), Chemours (CC), and International Paper (IP), which had weights of 5.5%, 6.1%, and 5.0%, respectively, on November 8.


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